Canada’s average cost for milk production is amongst the highest in the world. The paper focusses on specific potential causes by estimating economies of scale and technical efficiency for a panel of Quebec dairy farms that spans the 2001-2010 period. The stochastic frontier analysis based on an input distance function is use to estimate returns to scale relationships across dairy farms. We show that there is significant economies scale to be exploited and that cost of production could also be reduced by improving technical efficiency. The results have important implications for Canada’s supply management policy, and more specifically for the trading of production quota between dairy farmers, as well as for the delivery of targeted extension services.


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